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Sunday, 15 September 2013

Canadian Home Prices to Decline by 15% - Sun Life

The recent up swing in the Canadian housing market is nothing but a dead cat bounce according to Sadiq Adatia, Chief Investment Officer of Sun Life Global.

Mr Adatia predicts that Canadian home prices will drop by 10% to 15% over time as interest rates rise.

This past July the average home price in Canada was $382,373 according to CREA.

A price drop of 10% would mean that the average home price would decline by $38,237

A price drop of 15% - $57,355

A price drop of 20% - $76,474 which would bring the average home price in Canada to $305,898

I think Sun Life's CIO is being overly optimistic with regards to the price declines that lie ahead. As Canada's housing bubble bursts and fully deflates I expect prices to decline north of 20% over time. In my view, prices will return to pre-2008 levels in real terms.

The following chart visualizes real home prices in Canada with price drops of 10%, 15% and 20% over short term. Even a 20% decline will not fully deflate the Canadian housing bubble.

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